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Iao Kun Group Lowered to Strong Sell on Weak Q3 Results - Analyst Blog

Zacks Equity Research
Updated

On Dec 17, 2014, Zacks Investment Research downgraded Iao Kun Group Holding Company Limited (IKGH) to a Zacks Rank #5 (Strong Sell) due to disappointing third-quarter 2014 earnings, and reduced guidance for 2014 Rolling Chip revenues.

Why the Downgrade?

Iao Kun Group witnessed sharp downward estimate revisions after reporting disappointing third-quarter 2014 results on Dec 1. Shares of this Hong Kong-based gaming company have been declining since then and, given the negative earnings growth rate expectations in the upcoming quarters, it has more downside left.

Not surprisingly, analysts continued to revise their earnings estimates significantly lower for Iao Kun Group. Therefore, the Zacks Consensus Estimate for fiscal 2015 was lowered 11.8% to $3.08 per share from $3.58 over the last 60 days.

Iao Kun Group Holding posted a loss of 2 cents per share in the third quarter that compared unfavorably with the year-ago earnings of 16 cents. The significant downside reflects lower revenues and higher expenses.

Net revenue of $52.0 million declined 15% year over year and missed the Zacks Consensus Estimate of $57.0 million by 8.8%. The downside reflects a decline in win rate, slower revenue growth of VIP baccarat in addition to economic downturn and tightening of credit in mainland China, where the majority of the company’s VIP gaming patrons reside.

Iao Kun Group is engaged in the promotion of five major luxury VIP gaming facilities in Macau, the world’s largest market for gambling exposing it to the sluggish economic conditions in the region. VIP gamblers in Macau are curtailing expenditures due to a cooling Chinese economy. Also, the slowdown can be attributed to a nationwide crackdown on corruption in China that has compelled Macau officials to impose restrictions on VIP gamblers to stop billions of dollars from being siphoned off illegally from mainland China to Macau.

A slowdown in gambling in Macau since May 2014 has led the company to lower its expectation for 2014 Rolling Chip turnover or its five existing VIP rooms in Macau. The company now expects it in the range of $16.8 to $17.5 billion for 2014 as against $17.0 to $19.0 billion.

Stocks That Warrant a Look

Better-ranked stocks in the same industry include Isle of Capri Casinos, Inc. (ISLE), Penn National Gaming Inc. (PENN) and Monarch Casino & Resort Inc. (MCRI). All these stocks sport a Zacks Rank #2 (Buy).


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IAO KUN GROUP (IKGH): Free Stock Analysis Report
 
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Zacks Investment Research